Archroma_UK,_Ltd - Accounts

The directors present the strategic report and financial statements for the year ended 30 September 2019.

Principal activities

The principle activity of the Company is to provide sales for the global speciality chemical business trading under the name of Archroma, primarily to the UK Branch of Archroma Distribution and Management Germany GmbH.

The company was incorporated on 26 March 2013, for the purpose of acquiring the trade and assets of Clariant Distribution UK Limited and Clariant Production UK Limited.

Business model

The Archroma Group (the Group) has integrated its European sales activities within one company, Archroma Distribution and Management Germany GmbH (AD&M). Under this operating model the UK Branch of AD&M took on the responsibility of sales and related activities of the company. A significant part of the Company business is to support the UK Branch of AD&M with the sales and marketing, with the remainder of the business relating to purchasing and warehousing of Archroma traded products.

The Group is organised into three business units, textiles, paper and emulsions, with the Company focusing mainly on the paper, textile, wood treatment industry but more of a push into new markets such as optical brightening agents (OBA) detergents, cosmetics and leather.

The sales process is supported by a high level of technical support, provided on both a local and global level. Customers are therefore willing to accept higher prices due to the service level that the company provides.

Business review and results

The results of the Company show a loss after taxation of £100,000 (2018: profit £28,000).

The net assets of the Company at the period end were £480,000 (2018: £581,000).

Key performance indicators

The Company is measured on three key performance indicators:

• Sales;

• Gross margin;

• Net Working Capital (% of sales);

These three parameters tell us how we are performing as a company and across the group.

Sales have decreased by 3.8% to £8,925,000 when compared to the prior period, with a gross margin of 39.5% (2018: 36.9%). Net working capital, as a percentage of sales has decreased by 28.3% in the period. The net working capital targets for the company going forward will be to have less than 5% overdue debt.

Principal risks and uncertainties

As the Company provides sales and marketing services to Group companies, it must adapt to operating changes in those companies to ensure it provides the appropriate level of service.

The markets that we operate in can be very competitive for suppliers and customers. The continual improvement process that we operate as a supplier across the Group enables us to provide our customers with the tools to help keep them and us in profitable business.

Mandatory principles in Safety, Health and the Environment (“SHE”) are laid down in the groups SHE guidelines which form an integral part of business process and strategic planning.

There is a risk arising from the UK's exit from the European Union (EU), particularly around foreign currency however it is still too early to assess the impact, if any, on the Company arising from the UK exit from the EU. The Company will continue to trade as now, while the new arrangements are negotiated and implemented, and continue to monitor and evaluate any risks that arise.

Future developments

For the foreseeable future the Company will provide sales and marketing services to group companies, recharged at a margin. We therefore expect the Company to trade with a gross profit in 2020 and beyond.

The paper market in the UK is continuing to grow in the packaging and tissue sectors with a drop away in the printing and writing sectors. There are opportunities still to be had in paper packaging due to the issues with plastics.

This packaging can come in the format of coated board or moulded fibre trays.

The group is investing a lot of R & D time in developing chemicals for both of the growing industries, e.g. the development of bio based products to replace water based Acrylics.

There is a continued improvement on high end textile products and we have redirected our products based on this.

The Company will invest time into developing new markets for our products and also report back opportunities of new products that could suit our portfolio.

On behalf of the board

The directors present their annual report and financial statements for the year ended 30 September 2019.

The results for the year are set out on page 7.

No ordinary dividends were paid. The directors do not recommend payment of a final dividend.

The directors who held office during the year and up to the date of signature of the financial statements were as follows:

The company has made qualifying third party indemnity provisions for the benefit of its directors which were made during the year and remain in force at the reporting date.

The Company made no political donations or incurred any political expenditure during the year.

The company is supported by an application laboratory but does not directly incur research and development costs.

Garbutt & Elliott Audit Limited were appointed as auditor to the company and are deemed to be reappointed as auditor under section 487 (2) of the Companies Act 2006.

So far as each person who was a director at the date of approving this report is aware, there is no relevant audit information of which the company’s auditor is unaware. Additionally, the directors individually have taken all the necessary steps that they ought to have taken as directors in order to make themselves aware of all relevant audit information and to establish that the company’s auditor is aware of that information.

The group ensures compliance with the Modern Slavery Act. See www.archroma.com/our-ingredients for further details.

The directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union. Under company law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing these financial statements, International Accounting Standard 1 requires that directors:

•     properly select and apply accounting policies;

•     present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

•     provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and

•     make an assessment of the company's ability to continue as a going concern.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

We have audited the financial statements of Archroma UK, Ltd (the 'company') for the year ended 30 September 2019 which comprise the income statement, the statement of financial position, the statement of changes in equity, the statement of cash flows and notes to the financial statements, including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union.

In our opinion the financial statements:

•     give a true and fair view of the state of the company's affairs as at 30 September 2019 and of its loss for the year then ended;

•     have been properly prepared in accordance with IFRSs as adopted by the European Union; and

•     have been prepared in accordance with the requirements of the Companies Act 2006.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

• the directors' use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

• the directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the company’s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

Other information

The directors are responsible for the other information. The other information comprises the information included in the annual report, other than the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of our audit:

• the information given in the strategic report and the directors' report for the financial year for which the financial statements are prepared is consistent with the financial statements; and

• the strategic report and the directors' report have been prepared in accordance with applicable legal requirements.

In the light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report and the directors' report.

We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion:

• adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or

• the financial statements are not in agreement with the accounting records and returns; or

• certain disclosures of directors' remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

As explained more fully in the directors' responsibilities statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so.

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s website at: http://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Use of our report

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

The income statement has been prepared on the basis that all operations are continuing operations.

Archroma UK, Ltd is a private company limited by shares incorporated in England and Wales. The registered office is 35 Great St Helen's, London, EC3A 6AP.

The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted for use in the European Union and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS, (except as otherwise stated).

The financial statements are prepared in sterling, which is the functional currency of the company. Monetary amounts in these financial statements are rounded to the nearest £000.

The financial statements have been prepared on the historical cost basis, modified to include certain financial instruments at fair value. The principal accounting policies adopted are set out below.

The cost of a business combination is the fair value at the acquisition date of the assets given, equity instruments issued and liabilities incurred or assumed, plus costs directly attributable to the business combination. The excess of the cost of a business combination over the fair value of the identifiable assets, liabilities and contingent liabilities acquired is recognised as goodwill.

The cost of the combination includes the estimated amount of contingent consideration that is probable and can be measured reliably, and is adjusted for changes in contingent consideration after the acquisition date.

Provisional fair values recognised for business combinations in previous periods are adjusted retrospectively for final fair values determined in the 12 months following the acquisition date.

The directors have considered all factors, including in the wider economy, as part of their assessment of going concern. Subsequent to the year end, as detail in note 20, coronavirus Covid-19 has resulted in a global pandemic affecting businesses globally and within the UK. The speed and severity of the impact has been unprecedented but many Governments, including within the UK, have introduced considerable measures to help business through this extremely challenging time. The company is in a cash positive and net asset position at the period end. The trade of the company is closely linked to the performance and the requirements of the wider group. All funding requirements are met by the wider group. To this end the management company where group decisions are made in terms of group strategy, Archroma Management GmbH, has undertaken to provide such financial support as necessary to enable the company to meet its liabilities as they fall due. As the group’s subsidiaries are geographically diverse and serving 3 core markets, they have been impacted to a differing extent, providing some natural hedge against some of the Covid-19 impact. Nevertheless, the company and its wider group has put in place policies to mitigate the short to medium term effects of the pandemic, including re-forecasting and stress-testing to ensure adequacy of cash reserves and an ability to cover any short term losses. true

Taking all of the above into account, together with the cash position of the ultimate parent and the trading performance for the year to date both of the company and the wider group, at the time of approving the financial statements the directors have a reasonable expectation that the company has adequate resources to continue in operational existence for a period of not less than 12 months from the date of approval and, accordingly, the financial statements are prepared on the going concern basis.

The company adopted IFRS 15 in its financial statements for the year ended 30 September 2019. IFRS 15 discusses whether a contract contains more than one distinct good or service. In light of this, the company has reviewed its sales contracts and concluded that there is no impact on revenue recognition as a result of adopting IFRS 15, as such, there is no impact on the accounts.

The company recognises revenue from the sale of goods on behalf of its parent company, acting as a sales branch in the UK. Revenue is recognised on the gross basis as the UK purchases and resells the goods, and suffers the credit risk associated with the sale to the final customer.

This revenue represents income from sales services for the global speciality chemical business trading under the name of Archroma, primarily to the UK Branch of Archroma Distribution and Management Germany GmbH. Turnover represents net invoiced sales of goods, excluding value added tax, discounts and retrospective rebates during the year and derives from the provision of goods falling within the company's ordinary activities. The company recognises revenue when it transfers control of a product to a customer, at which point the performance obligations of the contract have been fulfilled in full.

When cash inflows are deferred and represent a financing arrangement, the fair value of the consideration is the present value of the future receipts. The difference between the fair value of the consideration and the nominal amount received is recognised as interest income.

Intangible assets acquired separately from a business are recognised at cost and are subsequently measured at cost less accumulated amortisation and accumulated impairment losses.

Intangible assets acquired on business combinations are recognised separately from goodwill at the acquisition date where it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity and the fair value of the asset can be measured reliably; the intangible asset arises from contractual or other legal rights; and the intangible asset is separable from the entity.

Amortisation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:

Technical certificates      12 years straight line

Property, plant and equipment are initially measured at cost and subsequently measured at cost or valuation, net of depreciation and any impairment losses.

Depreciation is recognised so as to write off the cost or valuation of assets less their residual values over their useful lives on the following bases:

The gain or loss arising on the disposal of an asset is determined as the difference between the sale proceeds and the carrying value of the asset, and is recognised in the income statement.

At each reporting end date, the company reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the company estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

Inventories are stated at the lower of cost and net realisable value. Cost is based on the weighted average principle and included expenditure incurred in acquiring the stock, production or conversion costs and other costs in bringing them to their existing location and condition. In the case of manufactured stocks and work in progress, cost includes an appropriate share of overheads based on normal operating capacity.

Net realisable value is the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.

IFRS 13 establishes a single source of guidance for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The resulting calculations under IFRS 13 affected the principles that the Company uses to assess the fair value, but the assessment of fair value under IFRS 13 has not materially changed the fair values recognised or disclosed. IFRS 13 mainly impacts the disclosures of the Company. It requires specific disclosures about fair value measurements and disclosures of fair values, some of which replace existing disclosure requirements in other standards.

Cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities.

Financial assets are recognised in the company's statement of financial position when the company becomes party to the contractual provisions of the instrument. Financial assets are classified into specified categories, depending on the nature and purpose of the financial assets.

At initial recognition, financial assets classified as fair value through profit and loss are measured at fair value and any transaction costs are recognised in profit or loss. Financial assets not classified as fair value through profit and loss are initially measured at fair value plus transaction costs.

The company adopted IFRS 9 in its financial statements for the year ended 30 September 2019. This new standard replaces current guidance provided by IAS 39 Financial Instruments: Recognition and Measurement on classification and measurement of financial assets and liabilities. In addition, IFRS 9 includes new requirements for general hedge accounting and impairment of financial assets. Overall, there is no impact on the company’s net assets or profit for the period on transition to IFRS 9.

When any of the above-mentioned conditions for classification of financial assets is not met, a financial asset is classified as measured at fair value through profit or loss. Financial assets measured at fair value through profit or loss are recognized initially at fair value and any transaction costs are recognised in profit or loss when incurred. A gain or loss on a financial asset measured at fair value through profit or loss is recognised in profit or loss, and is included within finance income or finance costs in the statement of income for the reporting period in which it arises.

Debt instruments are classified as financial assets measured at fair value through other comprehensive income where the financial assets are held within the company’s business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A debt instrument measured at fair value through other comprehensive income is recognised initially at fair value plus transaction costs directly attributable to the asset. After initial recognition, each asset is measured at fair value, with changes in fair value included in other comprehensive income. Accumulated gains or losses recognised through other comprehensive income are directly transferred to profit or loss when the debt instrument is derecognised.

Debt instruments are classified as financial assets measured at fair value through other comprehensive income where the financial assets are held within the company’s business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A debt instrument measured at fair value through other comprehensive income is recognised initially at fair value plus transaction costs directly attributable to the asset. After initial recognition, each asset is measured at fair value, with changes in fair value included in other comprehensive income. Accumulated gains or losses recognised through other comprehensive income are directly transferred to profit or loss when the debt instrument is derecognised.

The company has made an irrevocable election to recognize changes in fair value of investments in equity instruments through other comprehensive income, not through profit or loss. A gain or loss from fair value changes will be shown in other comprehensive income and will not be reclassified subsequently to profit or loss. Equity instruments measured at fair value through other comprehensive income are recognized initially at fair value plus transaction cost directly attributable to the asset. After initial recognition, each asset is measured at fair value, with changes in fair value included in other comprehensive income. Accumulated gains or losses recognized through other comprehensive income are directly transferred to retained earnings when equity instrument is derecognized or its fair value substantially decreased. Dividends are recognized as finance income in profit or loss.

Financial assets, other than those measured at fair value through profit or loss, are assessed for indicators of impairment at each reporting end date.

Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

Financial assets are derecognised only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership to another entity.

The company recognizes financial debt when the company becomes a party to the contractual provisions of the instruments. Financial liabilities are classified as either 'financial liabilities at fair value through profit or loss' or 'other financial liabilities'.

Financial liabilities are classified as measured at fair value through profit or loss when the financial liability is held for trading. A financial liability is classified as held for trading if:

•     it has been incurred principally for the purpose of repurchasing it in the near term, or

•     on initial recognition it is part of a portfolio of identified financial instruments that the manages together and has a recent actual pattern of short-term profit taking, or

•     it is a derivative that is not designated and effective hedging instrument.

Financial liabilities at fair value through profit or loss are stated at fair value with any gains or losses arising on remeasurement recognised in profit or loss.

Financial liabilities are derecognised when, and only when, the company’s obligations are discharged, cancelled, or they expire.

Equity instruments issued by the company are recorded at the proceeds received, net of direct issue costs. Dividends payable on equity instruments are recognised as liabilities once they are no longer at the discretion of the company.

The tax expense represents the sum of the tax currently payable and deferred tax.

The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The company’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting end date.

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at each reporting end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when the company has a legally enforceable right to offset current tax assets and liabilities and the deferred tax assets and liabilities relate to taxes levied by the same tax authority.

The costs of short-term employee benefits are recognised as a liability and an expense, unless those costs are required to be recognised as part of the cost of inventories or non-current assets.

The cost of any unused holiday entitlement is recognised in the period in which the employee’s services are received.

Termination benefits are recognised immediately as an expense when the company is demonstrably committed to terminate the employment of an employee or to provide termination benefits.

Payments to defined contribution retirement benefit schemes are charged as an expense as they fall due.

In the prior year, leases were classified as finance leases whenever the terms of the lease transferred substantially all the risks and rewards of ownership to the lessees. All other leases were classified as operating leases.

Assets held under finance leases were recognised as assets at the lower of the fair value of the assets at the date of inception and the present value of the minimum lease payments. The related liability was included in the statement of financial position as a finance lease obligation. Lease payments were treated as consisting of capital and interest elements. The interest was charged to profit or loss so as to produce a constant periodic rate of interest on the remaining balance of the liability.

The Company has early adopted IFRS 16 Leases from 1 October 2018, replacing the current lease guidance including IAS 17. Previously, all of the Company's leases were accounted for as operating leases.

Under IFRS 16, Leases are accounted for on the right of use model. The Income Statement presentation and expense recognition pattern is similar to that required for finance leases by IAS 17 previously adopted by the Company. At inception, the Company assesses whether a contract contains a lease. This assessment involves the exercise of judgement about whether the Company obtains substantially all the economic benefits from the use of that asset, and whether the Company has the right to direct the use of the asset.

IFRS 16 permits lessees to elect not to apply the recognition requirements to short term leases and leases for which the underlying asset is of low value. The Company has elected not to recognise short term leases of less than one year at inception and low value leases which will continue to be reflected in the Income Statement. This will be the ongoing policy adopted by the Company. There are no right of use assets or lease liabilities recognised for these leases, and the expense is recognised in the Income Statement on a straight line basis.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined, the Company uses an incremental borrowing rate which is the rate of interest that the lessee would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right‐of‐use asset in a similar economic environment.

The right‐of‐use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement day and any initial direct costs. They are subsequently measured at cost less accumulated depreciation and impairment losses. Right‐of‐use assets are depreciated over the shorter period of lease term and useful life of the underlying asset and are now presented within property, plant and equipment.

The Company applies IAS 36 to determine whether a right‐of‐use asset is impaired and accounts for any identified impairment loss in line with the Company’s existing impairment accounting policy.

Under IFRS 16, the straight‐line operating lease expense, previously charged under IAS 17 has been replaced with a depreciation charge for the right‐of‐use assets and interest expense on lease liabilities.

Transactions in currencies other than pounds sterling are recorded at the rates of exchange prevailing at the dates of the transactions. At each reporting end date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting end date. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary assets and liabilities denominated in foreign currencies that are stated at fair value are retranslated to the functional currency at foreign exchange rates ruling at the dates the fair value was determined. Gains and losses arising on translation are included in the income statement for the period.

Standards, amendments and interpretations in issue but not yet effective

The adoption of the following mentioned standards, amendments and interpretations in future years:

* These standards, amendments and interpretations have not yet been endorsed by the EU and the dates shown are the expected dates.

The directors have undertaken a project to review the above standards, amendments and interpretations. The impact of the amendments to IFRS 3 are likely to result in a simplified asset that would apply to future intangible asset acquisitions previously accounted for as business combinations, however there will be no transitional impact to the Group's reported results as these would apply before the date of transition to the revised standard. Except for this, management do not expect these standards to materially impact the financial statements.

The Company has initially early adopted IFRS 16 'Leases' from 1 October 2018, replacing the current lease guidance including IAS 17. The standard permits either a full retrospective or a modified retrospective approach for the adoption. The Company has adopted the standard using the modified retrospective approach, with the right of use asset being equal to the lease liability at the point of original recognition. Therefore, the cumulative impact of the adoption is recognised in retained earnings as of 1 October 2018 and the comparatives are not restated.

Further details on the Company’s IFRS 16 accounting policy and transitional impact are provided in Note 1.17.

During the year the Company has also adopted two significant new accounting standards, being IFRS 9 'Financial instruments' and IFRS 15 'Revenue from contracts with customers'. There has been no impact on the reported results, or Statement of Financial Position, through the adoption of these standards.

The preparation of the financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.

The key areas involving estimates and judgements are as follows;

Recoverability of trade receivables

Assessment must be made by management of the recoverability of trade receivables at each reporting date.

Recoverability of inventories

Assessment must be made by management over the net realisable value of inventories at each reporting date to ensure it is held at the lower of cost and net realisable value.

All of the company's sales are within the UK, however the majority of these are invoiced to a fellow group company, Archroma Distribution and Management Germany GmbH. The sales are all denominated in Sterling.

The prior year remuneration was paid to KPMG LLP, the prior year statutory auditor.

The average monthly number of persons (including directors) employed by the company during the year was:

Their aggregate remuneration comprised:

The number of directors for whom retirement benefits are accruing under money purchase schemes amounted to 1 (2018 - 1).

The charge for the year can be reconciled to the (loss)/profit per the income statement as follows:

Certain assets are under a pledge as part of a credit agreement with the ultimate owner.

IFRS 16 Leases Transitional Impact

Leases are shown as follows in the Statement of Financial Position and Income statement for the period ended 30 September 2019:

Short term leases of less than twelve months at inception and low value leases are charged to the Income statement evenly over the life of the lease. In the year ended 30 September 2019, £nil relating to short period and low value leases were included in operating expenses.

The liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate as of 1 October 2018. All leases were discounted using an estimated implicit rate of 6.8%, with the majority of leases relating to vehicles, with one property lease.

In applying IFRS 16 for the first time, the Company has used the following practical expedients permitted by the standard:

• The use of a single discount rate to a portfolio of leases with reasonably similar characteristics.

• Reliance on previous assessments on whether leases are onerous, but with additional impairments recognised where identified.

• The use of hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

Trade receivables disclosed above are classified as loans and receivables and are therefore measured at amortised cost.

The company adopted IFRS 9 in its financial statements for the year ended 30 September 2019. This new standard replaces current guidance provided by IAS 39 Financial Instruments: Recognition and Measurement on classification and measurement of financial assets and liabilities. In addition, IFRS 9 includes new requirements for general hedge accounting and impairment of financial assets. Overall, there is no impact on the company's net assets or profit for the period on transition to IFRS 9.

There were no trade receivables as at the reporting period other than debts owed by fellow group undertakings. This is because Archroma UK Ltd's fellow group undertakings bear all such credit risk on behalf of the company and therefore expected credit losses only arise on debts owed from group companies which are in turn transferred to Archroma UK Ltd's parent company. Due to this, the Directors consider that the company qualifies for Stage 1 impairment models which permits the simplified recognition of credit losses arising from default events that are possible within the next 12 months only.

Included within amounts owed by fellow group undertakings is a specific provision for irrecoverability of receivables amounting to £680,000 (2018 - £nil) which has arisen from Archroma UK Ltd's debts falling irrecoverable, yet fellow group undertakings taking on this risk and expense. This provision has been calculated in accordance with IFRS 9, taking into account expected credit losses for the following 12 months. In addition to this, there is a general provision for irrecoverability of £6,000 arising through expected credit losses for the company's entire population of trade receivables, where the company retains credit risk despite recognising the receivable as a receivable from group companies. The company has not restated the prior year to recognise an expected credit loss at that date on the grounds that the calculated loss was immaterial as at that date.

Included within current liabilities are amounts owed to fellow group undertakings. These are considered trading balances, which are repayable on demand and do not attract interest.

The amounts owed to parent undertakings represent loans and borrowings relating to a EUR 2.6m loan from SK Spice Holdings Sàrl, the ultimate parent company.

Terms and debt repayment schedule:

The loan matures on 30 June 2020.  Interest is payable quarterly and annually fixed on the 3 months LIBOR rate plus a margin of 6% which is considered to be at arm’s length/market rate. 

Financial instruments

No assets or liabilities are held at fair value, other than the long term loan detailed above, and therefore analysis of a fair value hierarchy is not considered necessary.

Credit risk

Credit risk is the risk of financial loss to the company if a customer or counter party to a financial instrument fails to meet its contractual obligations, and arises principally from the company’s receivables. As the majority of the receivables are intercompany the risk is considered low and therefore details about concentration of credit risk and quality of assets has not been provided. There is no impairment provision held against trade receivables.

Liquidity risk

Liquidity risk is the risk that the company will be unable to meet its financial obligations as they fall due. Due to the intergroup funding provided to the company this is not considered a significant risk. The EUR loan is payable on 30 June 2020.

Market risk – foreign currency risk

The company’s exposure to foreign currency risk is from the EUR loan and transactions with other group companies in Euros. Otherwise, revenues are denominated in GBP and the company largely operates in GBP, and therefore carries little foreign currency risk.

Capital management

The company manages its long term debt and equity through liaison with its ultimate parent company. There are no external capital requirements placed on the company.

Finance lease obligations are classified based on the amounts that are expected to be settled within the next 12 months and after more than 12 months from the reporting date, as follows:

The fair value of the company's lease obligations is approximately equal to their carrying amount.

The following are the major deferred tax liabilities and assets recognised by the company and movements thereon during the current and prior reporting period.

Deferred tax assets and liabilities are offset where the company has a legally enforceable right to do so. The following is the analysis of the deferred tax balances (after offset) for financial reporting purposes:

The company has 100 ordinary shares of £1 each in issue, rounded to £nil. The ordinary shares are non redeemable and hold full voting rights.

The capital contribution reserve of £773,000 arose in 2013 following a capital contribution from an immediate parent.

Amounts recognised in profit or loss as an expense during the period in respect of operating lease arrangements are as follows:

At the reporting end date the company had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows:

Under IFRS 16 Leases are accounted for on the right of use model. The Income Statement presentation and expense recognition pattern is similar to that required for finance leases by IAS 17 previously adopted by the company. At inception, the company assesses whether a contract contains a lease. This assessment involved the exercise of judgement about whether the company obtains substantially all the economic benefits from the use of that asset, and whether the company has the right to direct the use of the asset.

The minimum lease payments under operating leases expensed during the year relate to a property lease which had less than 12 months to expiry on adoption of IFRS 16.

Subsequent to the year end, coronavirus Covid-19 has resulted in a global pandemic affecting economies globally. The speed and severity of the impact has been unprecedented but many Governments, including within the UK, have introduced considerable measures to help businesses through this extremely challenging time. At the time of approval of these accounts, the full effect of the pandemic is uncertain, but it continues to impact trading within the company through 2020. Nonetheless, as noted in note [1.2] the directors consider that the company remains a going concern.

The remuneration of the directors, who are key management personnel, is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures.

During the year the company entered into the following transactions with related parties:

The following amounts were outstanding at the reporting end date:

The following amounts were outstanding at the reporting end date:

No guarantees have been given or received.

The company provides resale and marketing services to a number of group companies. It also incurs charges in respect of services provided by the wider group. Financing is also provided by the group as detailed in note 15.

The Company is a subsidiary undertaking of SK Spice Holdings Sàrl which is the ultimate parent company incorporated in Luxembourg with registered office 12 C Rue Guillaume Kroll, Luxembourg, 1882. The ultimate controlling party is SK Capital Partners LP.

SK Spice Holdings Sàrl is the smallest and largest group into which the company is consolidated. No other group financial statements include the results of the Company. The consolidated financial statements of the group are not available to the public.